Lowering Your Monthly Car Payment with the Help of a Bankruptcy Attorney
Many people have crushing car loans that are difficult to keep up with. They may wonder if filing for bankruptcy can help lower their monthly car payment. Depending on the type of bankruptcy you file and your particular circumstances, you may be able to lower your car payment. A bankruptcy lawyer can explain how to lower your car payment through this process.
How Chapter 7 Helps to Lower Your Car Payments
Many people wonder, “Can I lower my car payment in chapter 7?” The answer is, “It depends.”
Chapter 7 bankruptcy will not discharge your auto loan because it is a secured debt. You can’t keep the car and not pay it off.
However, you can potentially lower your car payment through the process of redemption. Many car loans are worth much more than the value of the car they secure. For example, your car might only be worth $10,000, but you still might owe $15,000 on it. A redemption allows you to pay off your existing vehicle loan by paying a lump-sum equal to the vehicle’s current market value. The market value is often much lower than the amount remaining on the loan. However, many chapter 7 bankruptcy filers do not have enough money sitting around to take advantage of this option.
If you want to keep your vehicle and cannot pay it off through the redemption process, you will likely need to sign a reaffirmation agreement. This is an agreement between you and your creditors that waives discharging the debt during your pending bankruptcy case. You affirm that you want to continue paying on the loan to keep your vehicle. If you miss payments, the creditor has the right to repossess your vehicle.
Lowering Your Car Payment Through Chapter 13
If you are filing chapter 13 bankruptcy, you are likely wondering, “Can chapter 13 lower my car payment?” Chapter 13 provides a greater opportunity to lower your car payment by reducing the principal balance and the interest rate of your car loan.
Reducing the Principal Balance
The typical vehicle depreciates 15 to 20 percent each year, so it makes sense that many car notes have a balance due that exceeds the market value of the car. Chapter 13 bankruptcy provides a process called a “cram down” that allows you to reduce the principal balance on your loan to the current market value. For example, if you owe $15,000 on a car loan for a vehicle that is worth only $10,000, you might be able to reduce the principal to $10,000.
Cram down is available if the balance of your loan exceeds the vehicle’s worth and you purchased the vehicle at least 910 days before filing your chapter 13 case. By decreasing the amount of the balance you owe, you can lower your vehicle payment. If you are near this timeline, your bankruptcy lawyer may suggest that you wait to file your petition until this timeline passes so that you can most maximize your bankruptcy protection.
Reducing the Interest Rate
Another way that you can potentially lower your car payment through chapter 13 is by reducing the interest rate you are paying. Chapter 13 bankruptcy gives you the right to restructure the terms of the promissory note you entered into with the lender. Through your reorganization plan, you can change the terms and conditions of the note and make your car payment much more affordable. If you have a high interest rate, reducing it to a lower interest rate can save you thousands of dollars over the course of the loan.
The interest rate that you can obtain is based on a formula the US Supreme Court provided for in the Till case. The Till rate of interest is 1.5 percent above the prime rate. If the prime rate is 3.25 percent, you could wind up paying an interest rate of 4.75 percent on your car loan. If you are currently paying 10 percent interest on a car loan with a balance of $20,000, the amount of interest you would save in a single year would be $1,050 because of the lowered interest rate. Additionally, your total monthly payment would be lower, which can help free up more funds to pay off student loans, save for retirement, or pay for household expenses.
A final way that chapter 13 bankruptcy can lower your car payments is by changing the repayment term. Chapter 13 reorganization plans last three to five years. If you extend the car payments for a longer period of time, you may be able to pay a lower monthly payment. However, talk to your bankruptcy lawyer to determine the best option to provide you with a manageable payment while also restructuring your debt.
How a Bankruptcy Lawyer Can Help
Lowering your monthly car payment may be just one of your goals for filing bankruptcy. Our seasoned bankruptcy lawyers can help by:
- Meeting with you during a free, confidential review to discuss your individual needs, goals, and concerns
- Exploring whether bankruptcy is your best option and which form of bankruptcy is best suited to you
- Working quickly to find efficient, tailor-made solutions for you
- Preparing your bankruptcy petition, schedules, and other necessary documents
- Answering any questions you have about the bankruptcy petition and any that arise throughout the process
- Maximizing applicable exemptions so you retain as much of your property as possible
- Structuring deals with your creditors to further maximize the benefits to you
- Ensuring that your case proceeds as smoothly as possible
Contact an Ohio Bankruptcy Lawyer at Amourgis Today
If you have questions about bankruptcy and car payments or would like to discuss your situation with a knowledgeable bankruptcy lawyer, contact Amourgis & Associates, Attorneys at Law. We can discuss your case during a free, confidential consultation. We have locations all over the state and can meet you at the one most convenient for you.